Finding stocks that are primed for gains is the key to success in the stock markets. Investors are naturally drawn to rising stocks – and while a particular equity’s past performance won’t ensure its future gains, momentum is a good indicator for determining price movements.
Momentum trading – buying into stocks that shown solid gains and are likely to keep moving upward – is a sound strategy, but it does take some skill on the investor’s part. A savvy investor has to know how to differentiate between a true momentum stock and a fad.
The key is in the profile. Investors can look for stocks that offer a combination of three factors: strong, sustained gains; highly optimistic ratings from Wall Street’s analysts; and an upside potential that points toward maintenance of further gains.
Based on that profile, we’ve pulled up three momentum stocks using TipRanks’ database. Not only have all of the tickers amassed enough bullish calls from analysts to be given “Strong Buy” consensus ratings, but each could also see considerable share price appreciation.
Kulicke And Soffa Industries (KLIC)
Industrial tech is big business. Every digital device that we use, from smartphones and tablets to factory robots, depends on a linked series technical gadgets, giving tool makers and part manufacturers a sound foundation for true momentum. Kulicke and Soffa, KLIC, provides solutions for electronic assembly in a variety of industries, including the automotive, communications, computing, and consumer goods sectors. The company’s product portfolio includes a range of tools for advanced packaging, electronics assembly, lithography, and wire bonding.
In the most recent quarterly report, for fiscal Q1 of 2021, KLIC reported $267.9 million at the top line, up 85% year-over-year. Income also gained, with EPS at 77 cents. This was more than triple the year-ago quarter’s 21 cents.
The company attributed the strong quarter to increased demand in the second half of calendar year 2020. Looking forward, management expects to see continued growth, and set fiscal Q2 guidance at $300 million in revenue (+/- $20 million) and EPS of 88 cents (+/- 10%).
Combining industry and high tech has been good for KLIC, whose stock has gained an impressive 143% in the past 12 months.
Covering KLIC for B. Riley Securities, 5-star analyst Craig Ellis believes that the path is clear for continued momentum.
“We boost F21&F22 estimates… with three factors sustaining a Buy. First, upstream secular and cyclical chip fundamentals should drive strong growth deep into C22, propelling upside estimate potential. Second, we believe new mini-LED and Advanced Packaging products remain on track for $100M of incremental F22 sales and greater LT. Third, near-term GM headwinds look temporal, and we expect progress toward 47.5% through F21/22 but model more conservatively,” Ellis noted. “
To this end, Ellis gives KLIC shares a Buy rating, and his $75 price target indicates confidence in a 26% upside for the coming year. (To watch Ellis’ track record, click here)
While there are only three reviews on record for KLIC, they are unanimous – to Buy the stock. This shows that Ellis’ upbeat outlook is no outlier, and gives the stock its Strong Buy analyst consensus rating. (See KLIC stock analysis on TipRanks)
ASML Holding (ASML)
We’ll stick with the high tech sector, and look at another provider of the tools that digital equipment manufacturers cannot live without. Specifically, ASML Holding designs and builds photolithography equipment, which is vital in the production of semiconductor chips. The company’s tools use optical imaging to impress circuit patterns on silicon wafers. This is the essential process in chip making, and ASML Holding has a 67% market share in its industry.
It’s a niche industry, but it’s one of the few that truly does make the world go ‘round.’ And ASML has profited mightily from its leading position. The stock is up 131% over the past 12 months.
The Netherlands-based company posted these share gains against a background of rising revenues. The top line has increased in each of the last four quarter, reaching 4.4 billion Euro (US$5.26 billion) in Q1 of 2021. EPS came in at 3.21 Euro (US$3.86), more than triple the $1.02 recorded in 1Q20.
In the first quarter, the company reported high customer demand, with bookings reaching 4.7 billion Euro (US$5.69 billion). Demand was especially strong in the Installed Base segment, as existing customers moved to upgrade software to meet their own increasing demand. In the background here is a semiconductor chip market that is seeing both increased demand and a severe supply shortage, as customers are racing to meet orders backlogged during the pandemic shutdowns and suppliers are racing to ramp up production from pandemic-induced low levels.
With all of that in the background, BofA analyst Didier Scemama selected ASML as his top large cap pick in European semiconductors.
“We expect ASML to benefit from multiple drivers incl. 1) Healthy competition among ASML customer base, confirming ASML status as a “weapon dealer” in the Intel/TSMC/Samsung process “war”, 2) Silicon sovereignty, driving EU/US to incentivize chipmakers to re-shore semis production and adding to China’s 2025 semis self-sufficiency ambitions, 3) EUV cycle: we model 21% sales CAGR ’20-25 driven by multiple, concurrent high-growth end-markets,” Scemama opined.
Unsurprisingly, Scemama rates ASML a Buy, and his price target of $806 suggests an upside of 20% in the next 12 months. (To watch Scemama’s track record, click here)
If we step back and look at the bigger picture, we can see that overall the stock has a ‘Strong Buy’ analyst consensus rating. In the last three months, the stock has received 4 Buy ratings and just 1 Hold. (See ASML stock analysis on TipRanks)
The third momentum pick, Ashland, inhabits the specialty chemical niche, producing a variety of necessary ingredients for a range of industries. The company products include adhesives, emulsifiers, and preservatives – to name just a few categories – and are used in the construction, coating, energy, food and beverage, health and wellness, packaging, pharmaceutical, and transportation industries. In short, Ashland is diversified.
That diversification has helped the company to weather the corona crisis, and propelled it to a share gain of 62% in the last 12 months. These gains came even as the pandemic – and the associate market, production, and supply disruptions – pushed 2020 annual revenues down to $2.3 billion from the prior year’s $2.5 billion.
In the most recent quarter, Q1 of fiscal 2021, Ashland reported $552 million at the top line. This was up 3.5% year-over-year, and beat the pre-earnings estimates by 1.6%. EPS came in at 99 cents per share, nearly double the 52 cents reported one year earlier – and 25% above expectations.
Analyst John McNulty, weighing in on Ashland from BMO Capital, sees a clear path forward for the company.
“We see solid upside to margins over the next few years, a focus on innovation/growth helping the top line and increased cash conversion… ASH continues to work towards improving its cost structure while also working to re-accelerate its top-line growth… Assuming management continues to execute and margins improve to 25%+ while the top-line growth improves to a mid-single-digit level, ASH should see earnings growth that significantly exceeds expectations while also enjoying multiple expansion.” the analyst commented.
McNulty rates ASH shares as Outperform (i.e. Buy), and his $115 price target implies a one-year upside of 22%. (To watch McNulty’s track record, click here)
Wall Street’s analysts can be a contentious lot – but when they agree on a stock, it’s a positive sign for investors to take note. That’s the case here, as all of the recent reviews on ASH are to Buy, making the consensus rating a unanimous Strong Buy. (See ASH stock analysis on TipRanks)
To find good ideas for momentum stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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